Earnings Call Transcript - GRFS Q2 2025

Daniel Segarra, Head of Investor Relations and Sustainability

Hello, everyone. My name is Danny Segarra, and I serve as the Head of Investor Relations and Sustainability and Vice President at Grifols. Welcome to our review of the company's business results for the first half of 2025. Today, I'm joined by Grifols Chief Executive Officer, Nacho Abia; Chief Financial Officer, Rahul Srinivasan; and the President of Biopharma, Roland Wandeler. A few logistics before we get into the details. Today's call will last about an hour, including a Q&A session. As a reminder, this call is being recorded. You can find additional materials, including today's presentation in the Investor Relations section of the Grifols website at grifols.com. The transcript and a replay of the webcast will also be available on the Investor Relations website within 24 hours. Turning to Slide 2. Please note that this presentation includes forward-looking statements regarding, among other things, the company's future operating and financial performance, market position and business strategy. These statements are based on current expectations and available information as of the date of this recording, and they are subject to certain risks and uncertainties that may cause actual results to differ materially from those projected. Therefore financial statements are prepared in accordance with EU, IFRS and other applicable reporting provisions, including alternative performance measures or APMs, prepared under the group financial reporting model as defined by the European Securities and Markets Authority. Please note that Grifols management uses APMs to evaluate financial performance, cash flow and overall financial position as the basis for operational and strategic decision-making. These APMs are prepared for all the time, periods presented in this document. Now moving to today's agenda. Nacho will start with some introductory remarks, followed by a discussion of our business performance and strategic execution. Then Rahul will review the financial results for Q2 '25. After Rahul's presentation, we will return to Nacho for his closing remarks. Roland will be joining us for Q&A. With that, I will now turn the call over to Nacho. Nacho, please?

Jose Ignacio Abia Buenache, CEO

Thank you, everyone, for joining us today. In May, we reported a strong start to 2025, and I'm pleased to share that this momentum continued into the second quarter with solid results across all key business and financial metrics. This performance highlights the strength of our operations and sets us on the right path to meet our guidance, allowing us to advance positively for the remainder of the year. It is in line with the value creation plan we discussed during our Capital Markets Day last February. It's noteworthy that we achieved these results despite navigating a complex environment filled with uncertainties. We remain vigilant and disciplined in monitoring developments, making necessary adjustments as needed. Our vertically integrated and globally diversified structure provides us with the flexibility to meet global demands efficiently while mitigating risks associated with tariff impacts. During the second quarter, we faced challenges from foreign exchange volatility. As shared previously, while these fluctuations affect our revenues and, to a lesser extent, EBITDA, the overall impact on group profit, leverage, and free cash flow has been largely neutral. As global currency dynamics shift, we maintain a proactive stance on monitoring our currency exposure and implementing strategic decisions to support our financial performance. Before we delve into the quarter's details, I want to thank every member of the Grifols team for their unwavering commitment to executing our value creation plan, which is already yielding significant results, reinforcing our ability to keep our promises and enhance value for our donors, patients, and stakeholders. Now, let's move on to our results for the first half of 2025, which indicate that we achieved revenues of EUR 3.7 billion, reflecting a year-over-year increase of 7% on a reported basis and 10.1% like-for-like at constant currency. Adjusted EBITDA reached EUR 876 million, a significant year-over-year increase of 12.7% on a reported basis and 20.1% like-for-like at constant currency. This demonstrates strong momentum, even after considering the IRA's impact. To contextualize, the second quarter of 2025 marks our second-highest revenue quarter ever, only trailing the fourth quarter of last year. The robust top-line performance has positively influenced our free cash flow, which increased by nearly EUR 200 million year-over-year, building upon the progress made in 2024. We anticipate this trend will persist in the latter half of the year. By the end of the second quarter, our leverage ratio per credit agreement decreased to 4.2x, a level we haven't seen since the first half of 2020. Free cash flow generation and deleveraging remain our key priorities. This positive performance has been driven by biopharma, which continues to grow alongside rising global demand. We also remain focused on enhancing profitability through targeted cost reductions and operational efficiencies aimed at expanding our margins. Innovation is another pillar of our strategy, and we are dedicated to accelerating our pipeline and maintaining our product launch schedule. Notably, we expect to launch fibrinogen in Europe in the fourth quarter of 2025, with the U.S. launch to follow in the first half of 2026. We have successfully executed across all operational fronts while maintaining a focus on our capital allocation framework, which underscores our efforts to generate cash flow, reduce leverage, streamline our corporate structure, and deliver shareholder value. A significant milestone this quarter was the successful delisting of Biotest, which will enhance our ability to unlock value from this strategic asset. Also, I am pleased to announce that our strong performance in the first half of the year gives us the confidence to recommit to one of our key capital allocation pledges: reinstating dividend payments, reflecting our dedication to shareholders and belief in our value creation plan. Our financial performance directly reflects our disciplined execution of this plan, based on three primary drivers: commercial growth, margin expansion, and pipeline execution. Regarding commercial growth, we continue to see strong momentum across our portfolio, a testament to our market position and commercial efforts. In the first half of the year, we reported a 7% increase in revenue, with over 12% growth on a like-for-like basis, driven by an 8.2% increase from biopharma. Margin expansion is a primary focus, and our commitment to efficiency and cost discipline is yielding positive results. Our multifaceted approach targets both cost reductions and yield improvements in our plasma and manufacturing processes, contributing to a gross margin of nearly 40% and a 25% adjusted EBITDA margin in the second quarter. We are also making substantial strides in our pipeline execution, committing resources to innovation, new products, and indications that support our growth strategy. Our plasma supply and industrial network provide us with a competitive advantage in meeting global demand. With 400 global plasma centers, we are positioned to efficiently source plasma while being resilient against macroeconomic uncertainties, including potential tariff impacts. In terms of specific performance, our biopharma portfolio achieved an 8.2% growth, with our IG franchise growing by 12.5% at constant currency. Demand for both intravenous IG and subcutaneous IG remains strong, with 14% and 66% growth, respectively, over the past year. We continue to see promising developments with Xembify, which has launched in nine countries and is experiencing robust growth. As for our albumin performance, we noted close to 10% growth in the second quarter, improving from the first quarter, which was affected by a licensing renewal in China. We expect some pricing pressures in that market, but our strategic partnerships are positioning us well to meet demand. Our first Canadian-produced albumin from our Montreal facility is now reaching patients, supporting our commitment to bolster Canada's self-sufficiency in blood products. In the alpha-1 franchise, we achieved 6.6% revenue growth in the first half. Our strategy targets enhancing patient identification initiatives and supporting the identification of the 85% of undiagnosed patients. Concurrently, our new innovations, such as the subcutaneous 15% trial for alpha-1 patients, are progressing well. Now focusing on margin expansion, our initiatives to improve efficiencies are proving successful. Our progress in implementing individualized nomograms is noteworthy, reaching over 60% adoption in U.S. centers, with a goal of 100% by 2026. This initiative will boost our bottom line and improve donation experiences. Continuously optimizing our plasma operations remains a priority. We're focused on enhancing collection volumes while investing in artificial intelligence and digital technologies to drive insights and automate processes. Now turning our attention to pipeline execution, we have exciting developments ahead, particularly with our upcoming fibrinogen launch supported by recently published clinical data. Our pipeline milestones are progressing, including the Giga 564 oncology program and the IND submission for IG in dry eye disease. Our diagnostic business is performing well, reporting 2.8% growth at constant currency, with all segments contributing positively. Our Blood Typing Solutions segment continues to grow, supported by recent FDA approvals to boost capacity. Overall, we are well-positioned to capitalize on growth opportunities in transfusion medicine while maintaining our leadership position. With that, I'll pass the call to Rahul for further details on our financial performance. Thank you.

Rahul Srinivasan, CFO

Thank you, Nacho. Moving on to the Q2 and H1 numbers on Slide 12. These financials have been subject to the customary H1 limited review by our auditors, Deloitte. As a reminder, our reported numbers are after the impact of IRA and the fee-for-service GPO reclassification. These reported numbers understate the true underlying momentum and hence, to improve comparability to prior periods, we will continue to disclose the like-for-like column for the rest of this year, which we believe will be helpful for analysts and investors to track our underlying performance. Starting with our reported Q2 '25 performance, another very strong quarter with reported revenues of just under EUR 1.9 billion and an adjusted EBITDA of EUR 475 million, our second highest adjusted EBITDA quarter ever. Implying a reported adjusted EBITDA margin of 25.1% and meaningfully higher than that on a like-for-like basis and contributing to a robust group profit and free cash flow pre-M&A for the quarter. This strong Q2 performance has supported a record first half performance for us from both a revenue and adjusted EBITDA standpoint, and I will touch on the key drivers on the following couple of slides. Year-on-year reported revenue growth was 7% on a constant currency basis and 10.1% on a like-for-like basis in constant currency terms. Year-on-year reported adjusted EBITDA growth was 12.7% on a constant currency basis and 20.1% on a like-for-like basis in constant currency terms. Both the reported revenue and adjusted EBITDA growth delivered in H1 '25 are significantly higher than what was implied by our full-year guidance for 2025, if you simply extrapolate it in a linear manner. And with average euro-dollar exchange rate being relatively flat when you compare H1 '25 versus H1 '24, the year-on-year comparison of reported results is less distorted by the depreciating U.S. dollar, an aspect that will cause more distortion when we make the same comparisons in H2. More on that a little later in the presentation. Both adjusted EBITDA margin and gross margin have improved, notwithstanding the impact of IRA. Whilst the business now treats the IRA impact like any other cost, the 80 basis points year-on-year improvement in adjusted EBITDA margin significantly understates the underlying earnings momentum of the business as evidenced by the 170 basis points improvement on a like-for-like basis. The significant normalizing of our business also helps our group profit or net income story considerably with H1 '25 group profit hitting $177 million, up around 388% year-on-year, and continuing to see that group profit growth remains a clear priority for us. With regards to free cash flow, another solid quarter of progress with H1 '25 free cash flow pre-M&A being $182 million higher than H1 '24. And like we said in our Q1 call a couple of months ago, unlike revenues and adjusted EBITDA, free cash flow is more protected from a depreciating U.S. dollar, and I will touch on this again later in the presentation. Finally, on the balance sheet side, there continues to be deleveraging progress supported by a strong liquidity position and significant rainy day secured debt capacity. So the balance sheet continues to be in a very robust position. And this leverage and liquidity picture is after the settlement of our successful delisting offer for Biotest, very much in keeping with the capital allocation assurances that we provided earlier in the year at our Capital Markets Day. Slide 13. Turning to our revenues. Our top line performance in Q2 continues the strong growth trends we have observed consistently over the last quarters. Biopharma remains the primary driver, delivering growth of 8.2% on a reported basis and 11.8% on a like-for-like basis, both at constant currency. This performance was primarily driven by the continued strength of our immunoglobulin portfolio, which saw broad-based demand across all major indications. After the phasing impact associated with the license renewals that we saw and talked about in Q1, we also saw a positive quarter for albumin growth and we still have a significant amount of catch-up over the next 12 months or so. And pleasing to see alpha-1 and specialty proteins maintaining their positive momentum. Slide 14. In the first half of 2025, adjusted EBITDA growth was nearly twice the pace of revenue growth. Reported EBITDA margin grew by 80 basis points and by 170 basis points on a like-for-like basis, reflecting the continued benefit of gross margin improvement, operational leverage benefit coming through, and general cost discipline. As previously mentioned, growth was primarily driven by strong underlying demand in biopharma. Our IG franchise continues to deliver robust or above-market growth across geographies. We also continue to drive down cost per liter through focused efficiency initiatives and improved yields. In parallel, we're transitioning to a more granular cost per gram of protein model to further enhance operational focus. To close this slide, let me touch upon IRA impact for H1 '25. Our EUR 58 million impact for the first 6 months of the year is aligned with our comments during the Q1 presentation and supports our confidence that the EUR 125 million midpoint of our full-year guidance remains a prudent estimate. We remain very focused on execution to capture the operational leverage benefits associated with our top-line growth while maintaining strict cost discipline across all functions. And finally, whilst we did face some FX headwinds in H1, they were relatively muted. And we expect that to be more meaningful in H2. Slide 15. As we have talked about a number of times before, a key area of focus has been to proactively reduce the cash adjustments between adjusted and reported EBITDA. It is great to see two key aspects on this slide. The continuing convergence of adjusted and reported EBITDA via a reduction of cash adjustments. Part of that is explained by the normalizing of our business and the stresses of the past being far away in our rearview mirror, reducing transaction and restructuring costs consistent with our prior guidance. Our cash adjustments have more than halved in H1 '25 versus H1 '24. The principal noncash adjustments relate to impairments, which are somewhat backward-looking and general are not expected to impact our go-forward free cash flow story that we presented at our Capital Markets Day. Notwithstanding the impact of IRA in 2025, it's great to see the strong growth rates, particularly the 17.8% growth in reported EBITDA on a constant currency basis and the significant increase in reported EBITDA margin. Slide 16. Free cash flow generation continues to be the cornerstone of our financial focus. After significantly outperforming our free cash flow guidance in 2024, we ended the first half of 2025 with an improvement of EUR 182 million year-on-year. This is a clear sign that the progress we saw in 2024, and again in Q1 this year were not one-offs and clearly demonstrate that this business can sustainably generate meaningful free cash flow. Obviously, with H1 '25 free cash flow pre-M&A still being slightly negative, the upcoming Q3 and Q4 quarters, that are our strongest free cash flow generating quarters, will be critical. Working capital continues to be a critical component of our free cash flow story. And we continue to make good progress, as you can see in the favorable comparison versus H1 '24. We saw continued investment in inventories to support the strong and sustained demand we benefit from, especially within biopharma. The profile across receivables and payables are stable and move in lockstep with the strong growth that we continue to benefit from. Our spend on CapEx, capitalized IT and R&D plans are all going as planned, and there is a greater weighting of this spend in H1 2025, so you can expect H2 spend to be lower. Q2 tends to be a heavier interest payment quarter for us, and this year was no exception. With EUR 235 million in interest payments driven by the existing phasing of our debt interest servicing. You can expect H2 interest to be meaningfully lower than H1 and full-year 2025 interest to be meaningfully lower than 2024. Part of that is driven by the deleveraging related to the partial disposition of the Shanghai RAAS stake, but also lower utilization of our RCF, meaningfully contributing to the lower interest spend. In conclusion, all going to plan on the free cash flow side, and we continue to manage the business with clear focus and discipline, and we remain confident about our full-year free cash flow pre-M&A outlook, that I will provide further context on later in this presentation. Slide 17. At our Capital Markets Day, we set out what we believe was a very clear capital allocation framework. And we simply continue to execute within that framework in a disciplined manner. Continued deleveraging and free cash flow generation are core to that framework, and we continue to make good progress on both fronts. As I've said before, with no meaningful maturities until Q4 2027, with our strong liquidity position, demonstrable capital markets access, and continued re-rating progress implied by the yields of our debt instruments, I feel confident about our balance sheet strength. We expect to execute our refinancing plans in a timely and prudent manner, at least 12 to 15 months before our 2027 maturities. Essentially, all going as we expected in this first pillar. Organic investment plans continue as expected, be it investment in inventory levels and other critical projects supporting our strategic goals in a disciplined manner, whilst continuing to improve our free cash flow generation. And as I said before, we remain confident about our free cash flow pre-M&A outlook in H2 '25. On the inorganic front, we successfully delisted Biotest from the Frankfurt Stock Exchange, and we did so as we guided to paying for it from our existing resources whilst continuing our deleveraging profile, and Biotest is progressing as we planned. And finally, on shareholder returns, which is an equally important pillar of our capital allocation framework, entirely consistent with what we said at our Capital Markets Day earlier this year, given the strong earnings and free cash flow generation momentum and continued progress on each of our other three pillars, we are pleased to confirm a EUR 0.15 per share interim dividend that will be paid in accordance with the OIR filed simultaneously with our results release a short while ago. Accordingly, this dividend will be paid shortly in August. It has been over 4 years since Grifols last paid a dividend. Having very responsibly paused dividend payments whilst recovering from this once-in-100-year pandemic event. With leverage now being clearly lower than the corresponding leverage when we last made dividend payments as an example between 2018 and 2021, and our continued confidence in our deleveraging path, we are pleased to confirm this dividend reinstatement. In conclusion, we continue to execute in a disciplined way against the capital allocation framework we set out at our Capital Markets Day.

Jose Ignacio Abia Buenache, CEO

Thank you, Rahul. I would like to wrap up the presentation with some final comments. The second quarter builds on the strong momentum from the start of the year. Our performance in the first half of 2025 reflects the disciplined execution of the value creation plan and tangible progress across all strategic levers: commercial growth, margin expansion and pipeline advancement. We are especially encouraged by the benefits from our ongoing optimization efforts, which continue to enhance efficiencies, further supporting margin expansion and improved free cash flow generation. Deleveraging also remains a top financial priority, and we are well on track with our leverage strategy reduction, reporting the lowest leverage ratio in 5 years. This achievement reflects not only our commitment to financial discipline, but also our commitment to long-term value creation. At the same time, we're investing for the future. Our R&D pipeline continues to advance with key milestones for the year delivered ahead of plan. From the upcoming launch of fibrinogen in Europe to promising early-stage program advancements, we remain focused on innovation as a core growth driver. Nevertheless, there is no question that the results were achieved in a complex macroeconomic environment, marked by persistent uncertainties and external factors, particularly FX. In the face of that, Grifols is well positioned to navigate global uncertainty. Thanks to our regional operating model, integrated supply chain, and operational agility. This gives us the flexibility to respond decisively and continue executing against our strategic roadmap. We remain confident that the strength of our business momentum, solid fundamentals and disciplined execution will largely offset the macroeconomic backdrop, including any pressure from FX headwinds. This positions us to reaffirm our full year 2025 estimates. Looking ahead, the alignment across our organization is clear. We remain focused on delivering the second half with the same rigor and discipline that define the first, confident in our ability to meet fiscal year '25 targets, strengthen our financial position and create lasting value for patients, donors and all our stakeholders. Thanks to you, as always, for your continued support. And with that, Danny, back to you.

Daniel Segarra, Head of Investor Relations and Sustainability

Thank you, Nacho, and Rahul. Now let's turn to the Q&A session. Our first question today is coming from Barclays, Charles Pitman-King.

Charles Pitman-King, Analyst

Charles Pitman-King from Barclays. Congrats on the strong results. Two from me, please. Just firstly, on the free cash flow and dividend. I'm just wondering if you could quickly confirm the lower interest costs are, in fact, primary driver of the raised free cash flow target then this year? And just in line with the dividend, can you just walk us through the logic of prioritizing the reinstatement of the dividend ahead of executing the call optional BPC and Haema, which I assume is still on track for execution in '26/'27 as part of the CMD. And then just a second question on the albumin market. I think, Rahul, you mentioned there's more acceleration to comp, and you're benefiting from Shanghai RAAS agreements. But just wondering if you could give us a bit of an outlook for what sort of year-on-year growth you might be expecting a return to given it was up 1% year-on-year currently? And what do you mean by pricing pressure? How should we think about that?

Rahul Srinivasan, CFO

Thank you, Charles. Regarding free cash flow and dividends, you're correct that our cash interest is expected to decline in the second half of the year, but several factors influence our free cash flow. I wouldn't attribute our dividend payment solely to improved free cash flow; it results from a combination of various elements and aligns with our capital allocation strategy. We are reducing our debt as planned, and our leverage is now at levels similar to when we last paid dividends about four or five years ago. We consider this a key part of our broader capital allocation approach. While cash interest payments are improving, they are not the only reason for reinstating dividends at this time. As we indicated earlier, we plan to resume dividend payments based on our 2025 results, and we discussed the potential for an interim dividend during our Capital Markets Day Q&A. Everything aligns well on that front. Now, about albumin?

Jose Ignacio Abia Buenache, CEO

Yes. This is Nacho. Regarding Albumin, the Chinese government has been working for a couple of years to lower healthcare costs per capita in China, which includes efforts to reduce pharmacy expenses. Albumin is a product that is highly valued in China and continues to be so, but these government pressures are creating increased competitive tensions, perhaps more than in the past. This situation highlights the advantage of having a local partner like Shanghai RAAS, as they have a strong understanding of the market and their customers. They are managing these tensions effectively, and we will keep monitoring the situation closely.

Rahul Srinivasan, CFO

And on Haema, BPC, Charles, as we guided to, our expectation is around half year next year, 2026. That remains our milestone for our target deadline or target date, if you like, for the exercise of the option. So no change in that regard either.

James Gordon, Analyst

James Gordon, JPMorgan. Two questions, please. The first one was IG trends. So IG grew 17.5% constant currency in Q1 but it looks like it's accelerated by about 5.5 percentage points to 12% in Q2. So it's still strong, but it does look like a bit of a deceleration. So is there anything one-off in the Q1 or Q2? And are you seeing any share loss in CIDP to Vyvgart, either people coming off IG earlier because we've got available or even something we're using Vyvgart ahead of IG. Could that be a factor in the slowdown that seems to be Q1 to Q2, or is that just noise? First question, please. And the second, just to remind us, Sanofi meant to report the headline data for Inhibrx in Q4. I know you've got a risk-adjusted competitive headwind already in the medium-term guide and the long-term aspiration. But could you remind me even if Sanofi does work and they can't get the products approved, would that imply any change to your guide or even with a 100% chance with Inhibrx coming, you'd still be able to get to the medium-term guide?

Rahul Srinivasan, CFO

Let me start with the IG trend. One important factor to consider is the impact of currency. If you analyze it on a constant currency basis, that addresses the trend question. Roland, would you like to take over on the topic of Vyvgart?

Roland Wandeler, President of Biopharma

Sure. We're now 1 year into the launch of FcRns, and we continue to see growth in our own sales in CIDP. And in fact, we do see and hear feedback from both thought leaders and physicians that they see IG as the standard of care and first-line treatment of choice in CIDP. We have been seeing use of FcRns, but mostly in the second-line setting. We've also seen some patients switch back to IG, and we remain confident in a strong role and in the growth potential that we have in CIDP.

Jose Ignacio Abia Buenache, CEO

Yes. According to Inhibrx, we previously mentioned that in our Capital Markets Day plan from February, we adopted a risk-adjusted approach. This means we considered a worst-case scenario, anticipating that Inhibrx would launch their product in 2027 as they announced, though this is still subject to necessary approvals. We are including this expected launch in our long-range plan. We are making good progress protecting our franchise against any potential competition from them, but we are also accounting for some impact in our projections. If the launch were to be delayed for any reason, it would positively affect our long-range plan.

Alvaro Lenze Julia, Analyst

My first question is about margins. I think Rahul mentioned that you expect to maintain the same momentum we've experienced in the first half of the year, and the underlying margin expansion has been very impressive. However, I'm curious about the more challenging comparison base since the second half already experienced significant margin expansion. Additionally, considering the pricing pressure you pointed out in Albumin, when you discuss maintaining these operational trends, do you also anticipate extending the margin expansion we saw in the first half into the second half? My second question pertains to the outlook for dividends moving forward. In the past, you provided both an interim and a final dividend. Could you clarify the reasoning behind the EUR 0.15 per share? Do you have a total figure in mind for the overall dividend or payout? How should we approach this?

Rahul Srinivasan, CFO

I will address both questions. Regarding margins, we previously indicated that the margin for the full year is expected to remain flat compared to last year due to the impact of the IRA, which we are managing. Thus, there is no update to our margin outlook for the year. As for dividends, our dividend policy remains consistent, as discussed during our Capital Markets Day. The established policy maintains a payout ratio of around 40%. Any potential changes resulting from board discussions will be communicated to the market as per standard procedures. Therefore, there is no significant change in that regard. It is important to view this as an interim dividend, and we will revert to the usual Grifols cycle for the final dividend payment, typically occurring around Q2 next year, if my recall is accurate regarding the timeline. Thus, our approach remains unchanged, and we will keep the market informed of any future developments in due time.

Guilherme Sampaio, Analyst

The first one is regarding your EBITDA guidance. So the low end of your EBITDA guidance implies a 1% year-on-year growth in the second half of the year. I understood that things should remain more or less in line with the first half in which you've grown by 12.7% in constant currency. So you still maintain this scenario due to FX uncertainties. And the second question is the phasing of the cash flow in Q3 and Q4. So you will have the interest payment in Q4. But still, should we assume free cash flow much stronger than the one that you have in Q4?

Rahul Srinivasan, CFO

Yes. Regarding your first question about EBITDA guidance, it is influenced by foreign exchange. The average FX rate for the first half was approximately $1.08, which aligns with what it was in the first half of 2024. FX remains somewhat unpredictable. When we initially provided our guidance during Capital Markets Day, most analysts expected euro-dollar parity, yet we're currently at around $1.15 or $1.16. We’re not forecasting FX changes. You've seen how strong our performance has been in the first half, and your comment about EBITDA guidance being affected by FX is accurate. However, as I mentioned, we have reaffirmed our guidance and increased our free cash flow pre-M&A guidance for the year. As for cash flow timing, the second half typically shows stronger cash flows compared to the first half, which has been consistent for a long time. We haven't provided specific guidance on the phasing between the third and fourth quarters and I prefer not to go into that now. Nonetheless, our increase in free cash flow pre-M&A guidance indicates strong confidence in reaching those updated targets, and we are optimistic about our current position as we continue to execute with discipline.

Alvaro Lenze Julia, Analyst

Just a quick question. You mentioned you expect to launch by year-end fibrinogen in Europe and then in H1 in the U.S., I don't know if you could provide us with some sort of guidance on what the initial sales could be and at what speed should we see this ramping up through next year?

Roland Wandeler, President of Biopharma

Alvaro, we will be providing more color on our launch when we get closer to it. What we can say at this stage is that preparations are on track. Our regular submission, obviously, last year, we're expecting to launch, as Nacho said, Q4 this year in Europe and first half in the U.S., and the launch preparations are advancing very well. And just to remind you, the opportunity that we have is twofold. In Europe, it's an established market. It's about competing and gaining share with growth potential in some markets. And in the U.S., it's about establishing a new standard of care, given that this is a new indication with acquired fibrinogen deficiency that we'll be launching in. This is an uptake that will take time, but the potential, which is very significant, as we discussed in the Capital Markets Day, we see the U.S. market potential north of $800 million. So we're excited about this launch, and as said, we will provide more color when we get closer to the date.

Jaime Escribano, Analyst

So a couple of questions from my side. The first one regarding the Canadian operations. Can you summarize or recap a little bit on the case study there? So what products are you going to produce and sell when? And what is the potential? I don't know if you can quantify in revenues or recall as the production that you expect to be producing in Canada? And the second question is regarding the 2Q IGC-IDP indication. When do you think you can have the indication and how relevant could this be for your subcutaneous revenues?

Jose Ignacio Abia Buenache, CEO

This is Nacho. I'll take the first question, and Roland will handle the second. The Canadian project has been ongoing for several years, stemming from an agreement with Canadian Blood Services aimed at enhancing their self-sufficiency in the market. Given the current circumstances, their interest in this project has intensified, and we've made significant progress. Currently, we have a functional facility that is producing albumin, and our plan is to expand production to include other products like immunoglobulins in Canada in the future. While we cannot disclose specific numbers related to this project, we believe we are becoming a strong partner with the Canadian healthcare system. Self-sufficiency is a crucial strategy for them, and we are collaborating closely. We are witnessing positive sales growth in the region, and we aim to further enhance our contributions moving forward.

Roland Wandeler, President of Biopharma

And as for your questions regarding CIDP for subcu, this of course is an important driver. Just to remind you, we launched relatively recently if you want into the subcu space and are very excited to see the momentum that we have in prime immune efficiencies, which is, at the moment, underpinning our growth. And you can imagine that unlocking CIDP as well will allow us to really compete in the full market. And with all of that, we expect that we will be able to get to similar share levels that we have in terms of IVIG. As for the timing, we're obviously very excited to start our Phase III, and we'll be providing more details, but we will be looking at a couple of years until coming to market there.

Charles Pitman, Analyst

So just a couple of quick follow-ups for me. Just to your bio supplies, I noticed there is not a huge amount of conversation just in the presentation today, I'm wondering what the kind of driver of that year-on-year volatility is? How we should think about that line item going forward? And then just secondly, you kind of mentioned the expansion of IG going forward to other indications to drive growth. Just wondering if you mean this primarily for SCIG or in line with the Phase II for dry eye disease, if you've got a relatively good roster of indications to continue to expand your IVIG franchise into just kind of how we should think about that pipeline opportunity for IG going forward?

Jose Ignacio Abia Buenache, CEO

As per bio supplies, Charles, I think that we haven't provided specific numbers. This is a business unit that is quite complementary for both biopharma and diagnostics as we use those products to complement customers in those markets. It's very much driven by the needs that the biopharma and diagnostic have, and based on that it keeps developing. I think we're still expecting growth in that business unit this year versus previous year and working towards that.

Roland Wandeler, President of Biopharma

And as it comes to IG moving forward, the biggest opportunity in size in these are indeed secondary immune deficiencies, an area which in the U.S. is still not in the label and where we see tremendous growth based on the occurrence of cancer and obviously, the advent of hematology treatment that require it treatment. So we're very excited about the opportunity to educate positions there and help ensure that patients suffering from secondary immunodeficiency actually get access to our medicine. In addition, as mentioned before, we have for our subcu the CIDP indication, which will be important. And we have a range of life cycle management programs that will strengthen our brand offering for Xembify, which we're very excited about. When it comes to the dry eye disease opportunity, we're very excited about bringing IG to this completely new field with intraocular formulation there. It's an exciting growth opportunity for the long term. But as you think about the IG market as it stands today, the key drivers are SID and CIDP.

Joaquin Garcia-Quiros, Analyst

Yes. A quick one from my side. Just on the alpha-1 specialty proteins, it has performed fairly well this quarter. I just wanted more information on if the growth was coming more from alpha-1 or from the rabies and other specialty proteins. And if it was from alpha-1, is it coming from a bit of gaining market share, pricing or just having more patients? And what can we expect for the coming quarters and years levels around similar to this quarter? Or more towards previous quarters, which was more towards low single digits.

Roland Wandeler, President of Biopharma

We don't provide detailed results for each one of the alpha-1 versus specialty proteins, but suffice to say that we were pleased with growth in each one of these. And as you zoom in on alpha-1, we're obviously happy to see how we're progressing with the change of our specialty pharmacy provider in the U.S., which allows us to bring to the market a stronger offering for our patients. And you touched on share, you touched on price and you touched on patients, which all three are part of our plan to continue to grow this brand. And notably, in an area where 85% of patients still remain undiagnosed, and where we are leaning in to see that we can help diagnose these efforts and does help grow the market in the U.S.

Daniel Segarra, Head of Investor Relations and Sustainability

Thank you very much, Roland. It was our last question today. Thank you very much for having us. If you have any further questions in the coming days, please feel free to reach the IR team. Thank you so much.